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A Bigger Voice for Small Nonprofits
By Jessi Hempel
Article re-printed from BusinessWeek
April 5, 2004
They're starting to realize that they
can wield outsize influence as activist shareholders,
much like pension funds have been doing
Last September, as investors at Smithfield
Foods' annual shareholders' meeting looked on, Nathan
Cummings Foundation Chief Investment Officer Caroline
Williams stepped up to the microphone. Her request
to the pork producer's directors: Please publish measures
of "the status of the research to identify environmentally
superior and economically feasible alternatives to
waste lagoons and spray-field systems." In short,
tell us how you're farms are doing at environmental
sustainability.
Nathan Cummings Foundation, a $414 million
nonprofit, has always made its business protecting
the environment. On last year's grant-making roster:
Greenpeace's Take Back the Earth Campaign, Earth Day
Network's Campaign for Communities Initiative, and
the Tides Center's Honor the Earth Project, among
many others. But Williams wasn't speaking to Smithfield
as a grant-maker last September. She was exercising
her voice as an investor with 31,600 shares of stock.
She had helped propose a question for
Smithfield's annual proxy ballot, and though the Securities
& Exchange Commission had knocked it off shortly
before the meeting, Williams used the investors' forum
to voice her concerns. Says foundation President Lance
Lindbloom: "We found that by voting our stock,
we could better address our social and economic justice
concerns."
STRANGE PREDICAMENT.
Williams and Lindbloom are two of the nonprofit leaders
launching a get-out-the-proxy vote campaign among
foundations. Their endowments totaled $400 billion
in assets last year. And in many companies, foundations
are substantial stockholders. Yet 62% leave their
investments to outside money managers, according to
a recent Council on Foundations survey. And only 54%
report that they don't automatically vote with management
on proxy ballot resolutions.
Leaders of the proxy-voting movement
say these foundations are overlooking a powerful tool
for social change. "Foundations do a lot of good
with the 5% of their assets they must give away each
year," says Neva Goodwin, co-director of the
Global Development & Environment Institute. "But
they don't realize how much power they could exercise
by being wise about the 95% of their assets they don't
give away."
Most foundations stick with traditional
investing practices, meaning many endowments invest
in stocks and bonds that have little to do with the
philanthropist's aims so they can produce the highest
possible returns and thus increase grant-making capabilities.
Sometimes this serves cross-purposes. By seeking the
highest possible returns, foundations can find themselves
in the strange predicament of donating funds to fight
cancer, for instance, while investing their assets
in tobacco company stocks.
LUMBER RESOLUTION.
Of course, philanthropists can screen out objectionable
stocks. But that strategy has its limitations: With
only a 2% share of the equities market, foundations
don't throw enough weight around. On the other hand,
even a shareholder resolution that gets just 8% to
12% of the vote can be enough to bring companies to
the negotiating table, says Conrad McKerron of the
As You Sow Foundation, who recently authored the manual
Unlocking the Power of the Proxy, which was funded
by the Rockefeller Philanthropy Advisors.
In 1999, for example, an 11% shareholder
vote, combined with a grassroots organizing campaign,
persuaded Home Depot to phase out sales of old-growth
timber. As You Sow and Trillium Asset Management filed
the original resolution.
Pension funds and religious organizations
learned this lesson a long time ago. They gained visibility
in the early 1990s by pressuring companies to stop
doing business in South Africa under apartheid. But
foundations have lagged behind other big institutions
when it comes to exercising their rights as corporate
owners. When they do vote on proxy issues, only 1
in 20 foundations instructs money managers to follow
their priorities, according to a Council on Foundations
survey.
"OPEN A DIALOGUE."
In the past three years, several high-profile do-gooders,
such as the Rockefeller Brothers Fund, the Needmor
Fund, and As You Sow, have joined longtime proxy voter
Ford Foundation. Two years ago, the $630 million Boston
Foundation became the first community foundation to
develop voting guidelines because "proxy voting
rights have moral as well as economic value and therefore
should be treated as assets," says James A. Pitts,
senior vice-president for administration and finance.
These foundations look to the success
of the Nathan Cummings Foundation as an example for
their own work. At Smithfield, Williams' question
was taken seriously. Says Dennis Treacy, vice-president
for environmental, community, and government affairs:
"We had already begun to go down that path, and
we thought it would be useful to open a dialogue."
So Smithfield held several conference
calls with Nathan Cummings representatives. Treacy
says Smithfield will soon release an environmental
report with new measurements of water use, nitrogen
oxide emissions, and natural gas consumption, among
other indicators, for its primary business operations.
Williams and Lindbloom want more. They
say Smithfield should report for its subsidiaries
as well as its main business, and they're already
drafting a resolution for next year's proxy ballot.
It's change they hope to accomplish by putting their
mission where their money is.
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